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CMA Final · Strategic Financial Management · Forwards and Futures

Nifty futures are quoted at 24,000 and each contract covers 75 units. A trader sells 4 contracts at 24,000. On expiry the index settles at 23,850. Ignoring brokerage and margin costs, what is the trader's profit or loss?

The trader earns a profit of Rs 45,000. A short futures position gains when the index falls, by 150 points here, and with 4 contracts of 75 units each, covering 300 units, the gain is 150 multiplied by 300.

  1. AProfit of Rs 45,000Correct
  2. BLoss of Rs 45,000
  3. CProfit of Rs 11,250
  4. DProfit of Rs 4,50,000

Explanation

A short futures position gains when the price falls. Gain per unit = 24,000 - 23,850 = 150. Total units = 4 x 75 = 300. Profit = 150 x 300 = Rs 45,000. Rs 11,250 results from using only one contract (150 x 75), and a loss would reflect the wrong sign.

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